The Fed finally cut interest rates in September, a long-awaited move that could ease mortgage rates. For prospective homebuyers who are watching from the sidelines, the Fed’s policy change will be a new factor to consider. Should you buy now, sell, or wait to see if future interest rate cuts will bring mortgage rates down even further?
This decision is not an easy one. Mortgage rates and home prices are difficult to predict. But housing experts say mortgage rates are unlikely to return to pandemic levels and home prices are likely to continue rising.
The median sales price for existing homes in the U.S. hit an all-time high of $426,900 in June 2024. Although sales prices have fallen slightly since then, home prices in July, August and September hit monthly highs. to the National Association of Realtors (NAR). Meanwhile, 81 percent of consumers believe it’s a bad time to buy a home, according to September 2024 data from the Fannie Mae Home Buying Sentiment Index.
Still, things are improving for buyers in some ways. According to Bankrate’s nationwide lender survey, mortgage interest rates will exceed 8% in October 2023. Interest rates have since retreated, with the average rate as of Oct. 30 at 6.88 percent. In another development, housing inventory continues to grow, reaching 4.3 months’ supply at the end of September, according to NAR.
Bad time to buy, but things could get much worse
Mortgage interest rates have fallen from last fall’s highs, but are still well above 6%. Additionally, home prices continue to soar, with NAR’s September data showing year-over-year increases for 15 consecutive months.
“Prices are not going down anywhere,” says Kurt Carlton, co-founder and president of real estate investment marketplace New Western.
Carleton cites the imbalance between housing demand and supply as one of the reasons. During the Great Recession, builders cut back on construction and housing starts remained low. Meanwhile, population growth and a strong economy mean more Americans are looking for housing.
For now, the housing market is stalled. National home sales fell to 3.84 million units in September, the lowest pace since 2010, NAR reported.
“When people don’t know what to do, they don’t do anything,” says Katie Severance, an agent at Douglas Elliman in Palm Beach, Florida.
However, waiting to buy a home may not be the best choice. There’s a good chance home prices will continue to rise, and the housing market will become even more difficult for buyers in six months or a year.
Let’s consider the housing environment in 2022. Home prices were skyrocketing and mortgage rates were about to rise from all-time lows. The conventional wisdom among housing experts was that home prices were likely to decline slightly, and buyers would be wise to wait. Instead, prices continued to rise even as mortgage rates doubled.
Today, potential buyers are faced with a conundrum. Is it better to wait for mortgage rates to fall, knowing that lower interest rates may tempt buyers and, in turn, increase demand for homes that are in limited supply?
“When interest rates come down, the market can turn around quickly,” Severance says.
Melissa Cohn, regional vice president at William Labeis Mortgage, advises those on the fence to buy now and refinance when mortgage rates drop. She calls this strategy “marry the house and date to the rate.”
What about sales?
It stands to reason that if it’s a bad time to buy, it’s a good time to sell. In fact, according to Fannie Mae’s Home Buyer Sentiment Index, 65% of respondents believe now is a good time to sell. Of course, if you are a seller who needs to buy another location, consider carefully how much you are willing to pay, given that prices have risen rapidly in many parts of the country over the past few years. Must be considered. year.
Local market trends also play a role in determining whether it’s a good or bad time to sell, Severance said. “In some areas, selling now is the right thing to do because prices are still going up,” Severance said. “In other markets, it may be best to wait to sell until interest rates fall and hold steady, which will stimulate selling again.”
Next step: Prepare to purchase
Buying a home is a very personal choice, so it’s difficult to know if a particular moment is a good or bad time to buy. Suppose you live in a small apartment and twins are born. Regardless of what’s going on in the broader market, now is probably the time to buy. However, there are some ways to make sure you’re ready.
- Work on your credit score. Your credit score is an important factor in determining what type of mortgage loan and interest rate you can qualify for. The most favorable mortgage terms are given to borrowers with credit scores above 740. However, it is possible to get a mortgage with a credit score of 620 or lower, although you are more likely to borrow through the Federal Housing Administration (FHA) or the Federal Housing Department. Utilize the Department of Veterans Affairs (VA) loan program rather than lenders that offer traditional loans.
- Please increase your down payment. In addition to paying your bills on time, you should try to save up a sizable amount for a down payment. The more you can pay upfront, the less you will need to borrow. Lenders are looking for additional cash reserves to provide a cushion in case of repair and maintenance costs. You don’t have to put down 20%, but you should have at least 3-5% down (unless you get a VA or USDA loan).
- Let’s spend some time at home. Buying a home involves closing costs beyond the purchase price, which can add up to several thousand dollars. Therefore, to justify these one-off transaction costs, you need to ensure that you will not be moving again for some time, or that you are financially stable enough to continue to hold and rent out your property. Additionally, if you sell your home soon after purchasing it, you may have to pay taxes.
